Analysis

9th July 2010

 

 

Sterling / Euro

 

The pound continued to fall against the euro yesterday, heading back below 1.20 as Trichet dismissed fears that the eurozone could be faced with a double-dip recession.

• As was widely expected the European Central Bank left their interest unchanged at 1.00%, but Trichet's comments in the press conference offered some support to the euro.
• While reiterating that recovery in the eurozone would be "moderate and uneven," the ECB President also said that the economy should see improved performance in the second quarter.
• The pound was also put on the back foot after data from Halifax showed that UK house prices fell by 0.6% in June, the biggest fall in four months. This served to offset more promising figures from the industrial sector where data showed output rising by 0.7% in May, almost twice as fast as had been expected.
• In trading this morning, sterling seems to have capped its downward movement with the price holding around 1.1950.
• Figures from the UK producer price index and May trade balance are both due this morning, but there is unlikely to be much in the numbers to impact sterling.
• The next point of interest for the UK economy will be the latest inflation figure due next Tuesday, which is currently a heated point of discussion among the BoE's Monetary Policy Committee.

 

 

Sterling / US Dollar

 

After touching a two-month high against the dollar on Wednesday, the pound eased off yesterday, finding resistance at $1.52.

• On a fairly quiet day between this pair, the pound failed to make headway as data showing a bigger-than-expected rise in industrial production was offset by a UK fall in house prices.
• The Bank of England's decision to leave interest rates and quantitative easing unchanged came as little surprise, and as has been the trend recently, the announcement went relatively unnoticed.
• However, the minutes from the meeting in two weeks time will be of interest as investors look to see if Andrew Sentence is still the lone member calling for an imminent rate rise.
• Improved risk sentiment is helping the pound to again edge higher today, but there is strong resistance at $1.52 and sterling will need fresh impetus to move through that level.
• With little data due today, we expect this pair to trade sideways into the weekend with investors awaiting a raft of figures from the US next week, which should offer an updated view of the health of the economy.

 

 

Euro / US Dollar

 

The euro climbed above $1.27 for the first time since May yesterday as ECB President Jean- Claude Trichet alluded to an economic recovery that is gaining momentum.

• During the press-conference Trichet offered up a more positive outlook for the eurozone economy, which although coming as no surprise, gave investors further reason to cut back on short positions against the euro.
• Speculation that stress tests for European banks were assuming smaller losses on Greek bonds than some investors anticipated, also gave the single currency a boost.
• Despite the obvious clouds hanging over the eurozone, the single currency has continued to advance this week, being pulled along by the positive sentiment that accompanies advances in equities.
• However, at 1.27 the price seems overstretched and even rallying stock markets may struggle to support the euro at this level.
• The price has dropped back below 1.27 this morning, and as investors take the opportunity to book profits the price could drop lower through the day.

 

 

Rest of the World

 

Australian Dollar

 

The pound lost another three cents against the aussie yesterday as solid job numbers from Australia and rising equities provided impetus to buy riskier currencies.

• Job numbers in Australia were up significantly in June with the overall unemployment rate dropping to 5.1%. This renewed speculation about further rate hikes, spurring investors to take up long positions in the aussie.
• Riskier assets were also on the rise as equities markets continued to gain and as the International Monetary Fund raised its forecast for global economic growth.
• In trading this morning sterling has crept higher, though movement is relatively muted with the price hovering just above 1.73.
• With little data to dictate direction, the equity markets are set to continue playing a pivotal role in the strength of the aussie. Whilst clouds linger over both the EU and US economies, we could see risk appetite ease in the short term.

 

 

New Zealand Dollar

 

As a higher-yielding currency, the New Zealand dollar was again on the rise yesterday, tracking a broadly improved risk-on environment.

• There was little change to the trend we've seen all week, with improved global sentiment as stock markets rallied lending support to currencies such as the kiwi and leaving sterling down at a ten-day low.
• In trading this morning, a fairly subdued session in Asia has allowed the pound to cap its losses, with the price now holding at 2.14.
• Next week will give a more extensive view of the current state of the New Zealand economy, with retail sales, housing figures, and second quarter inflation figures all due.

 

 

Caxton FX is Authorised and Regulated by The Financial Services Authority to provide investment advice.

This email is prepared by Caxton FX Ltd for information only. It may contain personal views that are not the opinion of the company. This is not an offer to purchase or sell any security. The information contained herein is believed to be reliable but Caxton FX Ltd does not represent that it is accurate or complete. No liability is accepted whatsoever for any loss from its use. Quotations and assumptions are indicative only. Caxton FX Ltd or its affiliates may have a material interest in the subject or a related matter herein. Caxton FX Ltd is authorised and regulated by the Financial Services Authority for investment advice only. Foreign exchange transactions with Caxton FX fall outside the remit of the FSA and are regulated by HM Revenue and Customs. This email does not constitute advice for any foreign exchange transaction, nor is it intended as a solicitation for funds or recommendation to trade. Caxton FX Ltd accepts no responsibility for any loss suffered or damages sustained through any act or omission taken as taken as a result of any of the information herein.